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CBI revised forecast: UK economy growth slower but interest rates to be cut further
In its latest quarterly economic forecast, the employers' organisation CBI has downgraded its 2008 outlook for UK growth by 0.2 per cent to 1.8 per cent citing continued problems in the credit markets, rising food and fuel prices and weak domestic and global demand.
For 2009 it forecasts even slower gross domestic product growth of 1.7 per cent in contrast with the chancellor's prediction of between 2.25 per cent and 2.75 per cent made in the recent Budget.
Ian McCafferty, the CBI's chief economic adviser, said that "the UK economy is being buffered by some strong headwinds" and that "some households are feeling a chill from the credit freeze, with lending conditions becoming tighter".
According to the CBI however, the slowing economy will bring inflation down in the medium-term thus allowing the Bank of England to cut interest rates twice in 2008 and once more in the beginning of 2009.
Interest rates currently stand at 5.25 per cent, following recent cuts and would be reduced to 4.5 per cent if the CBI's prediction came true.